70 Percent Of Credit Scores Will Improve With FICO's New Credit Score

The Fair Isaac Corp. (FICO) and data firm, CoreLogic, plan to
release a new credit score that would
change what affects credit
score rankings for consumers by accounting for
new information.

The companies evaluated the current factors of the FICO
score, and decided that including short-term loans and rental
information into the FICO score
calculation will likely help borrowers appear less
risky to lenders.

However, many have argued for years that this FICO score
calculation method doesn’t account for individuals who
are underbanked, or don’t have access to banks in their
areas and therefore aren’t taking out loans. Also, the existing
factors of what affects credit score outcomes does not consider
people who rent their homes, sidestep mortgage loans to buy homes
in cash and don’t want credit cards.

Together, FICO and CoreLogic have worked together
to pull consumer data, including property records and
liens, short-term installment loans for used cars and rental
information, to develop a new credit score.

CoreLogic said that the new system offers a more
accurate depiction of borrowers with a more precise score.

70 Percent of Scores Improve with New FICO Score Calculation

Vice President of CoreLogic, Tim Grace, estimated that 70 percent
of people will end up with better credit scores due to the
updated FICO score calculation.

Even more astounding is that about 44 percent of the U.S. landed
into the 800 to 850 FICO score range — the highest possible
bracket — under the new score, as opposed to about 18 percent
under the current system. The number of people in the 700 to 799
bracket dropped some, but this was due to the rapid increase in
Americans with even better credit under the new method.

The benefit of the new score is that more borrowers could qualify
for various types of loans and credit cards as well as lower
interest rates. Unfortunately, the new FICO score will not
replace the traditional score anytime soon, since
many lenders require the use of FICO scores.

CoreLogic predicts, however, that some banks may begin
utilizing the new score as a supplement to the regular score.
Currently, 25 lenders are already testing the product.